Cushman mulls turnaround, float

After taking a battering in the global recession, commercial real estate brokers are trying different strategies to compete in a post-boom world. Some are weighing options for infusions of capital, others are aggressively hiring or consolidating far-flung affiliates.

One of the biggest question marks is over the future of Cushman & Wakefield, the world’s third-largest commercial brokerage, according to National Real Estate Investor magazine. After losing $US127 million in 2009, Cushman recently installed a new chief ­executive,
Glenn Rufrano
, whose specialty is turning around troubled firms. The company’s majority stakeholder, the Italian firm Exor, is considering an initial public offering, he said.

“Exor is an owner that looks longer term but like any investor, liquidity is important to them," he said. To ­increase the chance of obtaining this liquidity, either through an IPO or from private financing, Mr Rufrano is making the firm more financially open. He has a five-year window – the term of his Cushman contract.

The hiring of Mr Rufrano in February suggests Exor is preparing an exit strategy, some analysts said. ­Mr Rufrano was most recently CEO of
Centro Properties
, one of Aust­ralia’s largest real estate firms, where he was credited with shoring up the company’s balance sheet.

In addition to increasing transparency at Cushman by instituting the same financial disclosures as a public company, Mr Rufrano is working to unify the firm’s management structure. This includes de-emphasising ­geographic barriers so the leasing team in London, for example, can co-ordinate more closely with colleagues in South America and New York.

Jones Lang LaSalle, based in Chicago and ranked fourth in the world, recently posted a profit after several losing quarters and began a four-year plan in January to lift its New York-area revenue by 50 per cent, in part by hiring brokers from other firms.

Colliers International, which has a global presence but is less well known in the United States, is hoping a move to consolidate its many separate franchises under a single name will help it gain market share and a reputation as a major player in New York. At Cushman, Mr Rufrano faces an uphill battle. While the slowdown in the economy has affected brokerage firms across the board, the firm has been hit particularly hard. In 2009, for example, when Cushman posted a loss – which it attributed partly to one-time charges like the relocation of its worldwide headquarters in New York – CB Richard Ellis, the largest global brokerage firm, posted a $US33 million profit.

One main reason for Cushman’s troubles may be a lack of top-down management, those familiar with the firm said. Bruce Mosler, who stepped down as CEO in January, was a powerful broker in his own right and the firm is largely organised into teams ­focused on successful deal makers. These teams may compete with one another for commissions.

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In comparison, firms like CB ­Richard Ellis and Colliers Inter­national favour grouping brokers ­together on an ad hoc basis. While there are independent brokerage teams at Jones Lang LaSalle, employees there were compensated with salaries and bonuses instead of commissions until seven years ago, helping establish a more unified culture, the firm says.

Mitchell Rudin, president and CEO of the tristate region of CB ­Richard Ellis, said: “Having individual teams is constraining. Instead, we select teams for a particular assignment, mixing and matching to bring together the best resources." While this model serves the clients, it also cuts down on friction between brokers, he said.

There is also the issue of Cushman’s ownership structure. While it is private, its majority stakeholder, Exor, the investment arm of the Italian ­Agnelli family, is public. Exor spent $US563 million to acquire a 67.5 per cent position in Cushman in December 2006, at the height of the market. It later increased its position to 72 per cent and is keen to see its investment turn the corner.

Brandon Dobell, a principal at the investment firm William Blair & Co in Chicago, said an IPO was the most likely possibility for Cushman.

As Cushman determines its future, Jones Lang LaSalle, which posted a profit of $US200,000 ($226,900) in the first quarter of this year compared with a $US61 million loss in the corresponding period last year, is focused on increasing revenue.

President of the firm’s New York operations Peter Riguardi said: “When I joined seven years ago, revenue was below $US20 million and it is now more than $US120 million. We plan to grow this by another 50 per cent over the next four years to bring it to $US200 million through a combination of improving market conditions and strategic hiring."

The firm recently made a splash when it poached some of Cushman’s most prolific deal makers, including much of the capital markets group. The team of Scott Latham, Richard Baxter, Jon Caplan and Ron Cohen was behind some of the largest transactions of the boom era, including the Plaza Hotel and 666 Fifth Avenue.

Another firm that is undergoing a major shift is Colliers International. The second-largest global brokerage firm, it is largely unknown in the United States. This is partly because of its structure as a loose network of franchises that operate largely independently. Through acquisitions and management changes, the publicly traded FirstService Corp in Toronto, which owns a number of the Colliers franchises, is consolidating these firms under the Colliers International brand. Firms that decline to join will be forced to drop the Colliers moniker.

Mark Jaccom, CEO of Colliers for the tristate region, said: “We are in a position where we can’t lose any more market share, we can only gain. And we plan to take our competitors’ market share out from under them."

Mr Jaccom and his team are building up a consulting group and plan to hire 25 or so additional brokers. “We want our brokers to mine their relationships, to hold our clients’ hands throughout the entire process," he said. “Our business is going to be much more sophisticated, where we do an entire playbook and work on everything from workplace solutions to IT [information technology]."

So far a consolidated Colliers has received mixed reviews. A senior equity analyst at Sidot & Co, David Gold, said he believed “it will be the firm to watch over the next three years – they used the downturn wisely to grow and I wouldn’t bet against them".

Others dismiss the move as nothing more than a name change. Mitchell Steir, CEO of Studley, a New York-based brokerage firm that specialises in representing tenants and is a competitor, said: “It takes years to build a brand. It can’t be invented overnight by slapping a new name on a collection of different firms with different philosophies."

Whatever the chances of success, industry insiders say it is clear changes are afoot that could lead to power shifts in the industry. “Times of turmoil often lead to consolidation and strategy shifts," Mr Dobell said. “It will be interesting to see how it all plays out."